Record Fine Shows Some Banks Are Too Big to Indict

Agenda-Setting Financial Insight.
Dec. 11 2012 4:31 PM

Record Fine Shows Some Banks Are Too Big to Indict

158187387
HSBC is one of the globally systemic banks that would be easiest to break up

Photo by PHILIPPE LOPEZ/AFP/Getty Images

HSBC’s $1.9 billion fine for money-laundering is a record for a bank, but its one-off nature means that it’s largely symbolic for an institution with a market cap of 118 billion pounds. The outcome could have been worse. Some U.S. regulators wanted to indict the UK lender, according to a New York Times report, but they backed down on fears that a heavy-handed approach could destroy HSBC’s U.S. arm and destabilise the wider banking system.

Prosecutors at the U.S. Justice Department were considering three options for HSBC and in the end chose the least punitive, according to the report. Of the two tougher calls, a money-laundering indictment would have spelt the end of the bank’s U.S. business, forcing it to withdraw its banking charter; a lesser criminal indictment would have left HSBC facing restrictions on the scope of its operations as a minimum. Both could have triggered a negative impact on the economy that authorities were keen to avoid.

Advertisement

Of course, the wide-ranging steps that HSBC has taken to overhaul its business in the wake of the alleged money-laundering may also have swayed prosecutors’ opinion. But the consideration given to the prospect of systemic risk shows how little has been done since the beginning of the financial crisis to force banks to plan for orderly resolution, in spite of pledges to the contrary.

True, a joint paper on how to deal with failing banks published on Dec. 10 was welcome evidence of joined-up thinking between the U.S. Federal Deposit Insurance Corporation (FDIC) and the Bank of England - but the details were scarcely fleshed out. Meanwhile, other contradictory moves by regulators do little to help: German, UK and U.S. watchdogs are angling for banks to set up separately capitalised subsidiaries, in order to keep cash from leeching abroad.

As it is, HSBC is one of the globally systemic banks that would be one of the easiest to break up: its overseas entities are separately capitalised to a greater degree than most peers’. Yet regulators chose to leave its U.S. business largely unchanged - even though they have another five years during which they can indict the bank if it fails to stick to its side of the bargain. In the meantime, the record-breaking fine is yet another sign that, four years after the collapse of Lehman Brothers, finance is far from fixed.

Read more at Reuters Breakingviews.

Dominic is a London-based columnist covering investment banking. Prior to Breakingviews, he spent two years at moneydealer ICAP.

TODAY IN SLATE

Jurisprudence

Don’t Expect Adrian Peterson to Go to Prison

In much of America, beating your children is perfectly legal. 

Ken Burns on Why Teddy Roosevelt Would Never Get Elected in 2014

Cops Briefly Detain Django Unchained Actress Because They Thought She Was a Prostitute

Minimalist Cocktail Posters Make Mixing Drinks a Cinch

How the Apple Watch Will Annoy Us

A glowing screen attached to someone else’s wrist is shinier than all but the blingiest of jewels.

Books

Rainbow Parties and Sex Bracelets

Where teenage sex rumors come from—and why they’re bad for parents and kids.

Books

You Had to Be There

What we can learn from things that used to be funny.

Legendary Critic Greil Marcus Measures and Maps Rock History Through 10 Unlikely Songs

Catfish Creator Nev Schulman’s Book Is Just Like Him: Self-Deluded and Completely Infectious

Behold
Sept. 12 2014 5:54 PM An Up-Close Look at the U.S.–Mexico Border
  News & Politics
Jurisprudence
Sept. 14 2014 2:37 PM When Abuse Is Not Abuse Don’t expect Adrian Peterson to go to prison. In much of America, beating your kids is perfectly legal. 
  Business
Moneybox
Sept. 12 2014 5:54 PM Olive Garden Has Been Committing a Culinary Crime Against Humanity
  Life
Inside Higher Ed
Sept. 13 2014 8:38 AM “You’re More Than Just a Number” Goucher College goes transcript-free in admissions.
  Double X
The XX Factor
Sept. 12 2014 4:05 PM Life as an NFL Wife: “He's the Star. Keep Him Happy.”
  Slate Plus
Behind the Scenes
Sept. 12 2014 5:55 PM “Do You Know What Porn Is?” Conversations with Dahlia Lithwick’s 11-year-old son.
  Arts
Brow Beat
Sept. 14 2014 7:10 PM Watch Michael Winslow Perform Every Part of “Whole Lotta Love” With Just His Voice
  Technology
Future Tense
Sept. 12 2014 3:53 PM We Need to Pass Legislation on Artificial Intelligence Early and Often
  Health & Science
New Scientist
Sept. 14 2014 8:38 AM Scientific Misconduct Should Be a Crime It’s as bad as fraud or theft, only potentially more dangerous.
  Sports
Sports Nut
Sept. 12 2014 4:36 PM “There’s No Tolerance for That” Pete Carroll and Jim Harbaugh say they don’t abide domestic abuse. So why do the Seahawks and 49ers have a combined six players accused of violence against women?